Century of Progress

ONE HUNDRED YEARS AGO today, Henry Ford and 11 brave men signed articles of incorporation for the Ford Motor Co. The bullheaded Ford's first two attempts at creating automobile companies were failures, and Ford Motor nearly followed along. The hard thing to imagine is why those 11 men invested in him. There were other places to put their money, including 15 other car manufacturers in Michigan and 88 in the rest of the country.

Making automobiles was then a craft, not an industry. Henry Ford, a school dropout, tinkerer and self-taught engineer, was no craftsman. Ford Motor Company's first model A, and the successor models B, C, F, K, N, R, and S, were brief stopping points along the road in Ford's effort to make cars quickly and cheaply. In five years, the model T was an instant success.

For a detailed look at the successes and failures of Ford's century consult a new book by Douglas Brinkley called Wheels for the World -- Henry Ford, His Company, and a Century of Progress.

The model T was not the best car that could be made, it was the best car that could be made easily. By the time the conveyor belt and the assembly line were introduced at the Highland Park, Mich., factory in 1913, the model T had the volume necessary to cover and justify huge investments in capital equipment.

Those investments, in turn, made possible higher wages -- an unprecedented $5 a day for unskilled labor in 1914 -- and the wages made a work force of customers for Ford cars. When Ford instituted the five-day week, in the next decade, he declared it to be in his self-interest: "People who have more leisure...require more transportation in vehicles," he said.

Through 13 years of model T production, the Ford company continuously improved the same design and continuously cut the retail price of the car. His insistence on continuous improvement brought him into conflict with shareholders who preferred dividends, so he bought them out. He and his family were the sole owners of the company for the rest of his life and until 1956, when his grandson took the company public.

Other things that Henry Ford made part of what the people of his day called "Fordism" included generous wages but violent hostility to unions, pacifism but enthusiastic participation in war production, nostalgia for bucolic farm life but intensely regimented urban factories, equal treatment of African-American workers but vicious anti-Semitism.

Ford was the ultimate practitioner of vertical integration. By 1927, his River Rouge industrial complex included a steel mill, a woolen mill, a glass factory and practically everything necessary to make parts to make cars. It took in iron ore and other raw materials at one end and sent finished automobiles out the other. In the mid-1920s he told Clarence W. Barron that the company didn't really need to make everything itself, but it intimidated suppliers to his advantage and educated his purchasing staff to know what the lowest possible cost could be.

Ford was an economic internationalist: Two cars from the first year's production were sold to British buyers, and a European sales organization was set up in 1908. The first Ford plant outside the U.S. opened in 1911; a Ford plant in England that opened in 1931 was Europe's largest factory and it was by then one of more than a dozen around the world.

Earlier this year, Ford Motor Company unveiled a perfect demonstration of the difference between craft and industry that had made Henry Ford so successful. To celebrate the company's centennial, it commissioned the construction of six brand-new Ford model Ts. The company hasn't said how much they cost, but it has said the project occupied two builders full-time, and 250 engineers and suppliers part-time, for two years. A back-of-the-envelope calculation suggests the cars cost the company $500,000 each. In 1914, Ford was selling model Ts for under $300. Adjusted for inflation, that's still only $5,490.

With the pioneers of electricity, electronics, chemicals and aviation, Henry Ford and the other pioneers of automotive transport created our world. The 100th birthday of the Ford Motor Company is a milestone of the modern age.

Hamming It Up

Prosecuting Martha Stewart stretch the law and the bounds of good taste

MARTHA STEWART MAKES A beautiful ham sandwich. Her indictment seems to celebrate the old claim that a skilled prosecutor can lead a grand jury to indict a ham sandwich. The Martha Stewart case is strictly from Smithfield.

Stewart is charged with lying about her use of information about Imclone to sell her stock and avoid a loss, but she is not charged with the crime of insider trading. That suggests if she had told government investigators the truth they would have let her off. Or not, depending on the prosecutor's whim.

The fault lies not with Stewart but with the law on insider trading. Congress and prosecutors have resisted defining the crime of insider trading, because to define it would be to limit it to the acts defined. The government prefers to define it case by case: "He did what? Oh, that should be illegal. So it is."

In this case, Stewart was a friend of Imclone's CEO, Samuel Waksal, and owner of 3,928 Imclone shares, having sold most of a much bigger stake months before. It appears that her broker passed her word that the CEO was selling his stock. Waksal had learned of an imminent unfavorable Food & Drug Administration action about an Imclone drug application, and sold before the news got out. The government stretches the unwritten law to say that's illegal.

Waksal has pleaded guilty and been sentenced for tax evasion, obstruction of justice and insider trading. He was an insider who traded. He knew what he was doing, and he knew the government thinks it's wrong. But what about Martha Stewart? She traded, but was she an Imclone insider? Well, no. Did she have a duty to Imclone, or to the FDA, to keep their secrets? Well, no. Did she even know any secrets about Imclone's problem with the FDA? Well, no.

The indictment does charge Stewart with a convoluted version of securities fraud, alleging that her effort to keep her Imclone affairs secret constituted a fraud on the shareholders of her own company, Martha Stewart Living Omnimedia. They would have sold if they had known she was about to have her name dragged through the mud. (If they had sold, would they have been up for insider-trading charges?)

The closest the government gets to an acceptable theory is the claim that Stewart should have known that her broker was violating a confidential relationship with his employer, Merrill Lynch, when he told her that Waksal was selling. The Supreme Court, on an off day in 1997, upheld a similar theory against a lawyer who traded options in Pillsbury after he learned at work that a client of his firm planned a tender offer for the company. This precedent may apply to the charge against the broker, but Stewart is another degree of separation from the status of insider.

It may turn out to be important to the case that Stewart is a former stockbroker herself, so she should have known that her broker was violating a trust. But it's more important to the prosecution that Stewart is a celebrity. She's glamorous and a professional perfectionist -- a perfect target for adverse publicity. If you look normal, live in a normally messy house and eat normal food presented on normal platters, you want to see her flaws. Her blue-plate special standards are supposed to be higher than ours, and that makes it delicious when a hammy prosecutor makes her out to be just another ham sandwich. But it's not justice.

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